OPPORTUNITIES IN
INFRASTRUCTURE
INVESTMENT IN INDIA & ITS
CHALLENGES
Singhania and Co. LLP
INFRASTRUCTURE IN
INDIA
The infrastructure sector is defined as;-
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Power: Generation, distribution and transmission of electricity
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Telecommunication: Setting up infrastructure and provision of GSM and CDMA services
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Railways: Provision of support infrastructure
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Road including bridges: Construction and management
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Sea port and airport : Construction and management
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Industrial parks : Construction and management
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Urban infrastructure (water supply, sanitation and sewage projects)
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Mining, exploration and refining
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Cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of
agricultural and allied produce, marine products and meat.
Singhania and Co. LLP
OPPORTUNITIES
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As per Planning Commission’s projection the Investment in Infrastructure will
almost double at US $1000 Billion over 12th Five year plan (2012-17).
Opportunities exist for all EPC contractors to participate in each of the
infrastructure sector. Government is keen on public private partnershipwhere contracts are awarded on Build Operate Transfer (BOT) and Build
Own Operate and Transfer (BOOT) basis. Typical operating period is 35
years or more.
Opportunities also exist for consulting firms in the area of Project Preparation,
Design Engineering and Construction
And there is tremendous scope for equipment manufacturers to lease or sell
construction equipment
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Opportunities in Power sector
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Power sector to grow by 9% to sustain the economic growth
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Installed capacity to reach 800 GW by 2031-32 from present level of 128 GW
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Entry barriers are removed for power generation, reduced for transmission,
distribution and supply.
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Open access in transmission already in place in interconnected all India Grid
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Open access to consumers above 1 MW requirement (Business supply)
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100% FDI permitted in all segments. Over 12th Five Year Plan 2012-17
Investment of USD 50 Billion is required for Generation and another USD 50
Billion for Transmission, Distribution and Rural Electrification
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Duty free import of equipment permitted for Mega Power Project (above
1000MW for Thermal and 500MW for Hydro project)
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Most project execution through International Competitive Bidding
Singhania and Co. LLP
The Energy Strategy
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Full Development of Hydro Power
Domestic coal to remain primary source with emphasis on Super Critical Plants and
Clean Coal Technology
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Import of coal on moderate scale for coastal locations
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Use of gas dependant on availability and price
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Import of gas- LNG terminals, Gas pipelines from Western and Central Asia
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Emphasis of Biomass
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Development of Wind Power. With more than 5500 MW Wind Capacity India is fourth
largest in the world.
Development of mini and micro Hydroelectric projects, Solar Power and rapid increase
in share of nuclear power dependant on International cooperation.
Singhania and Co. LLP
Railways Sector Summary
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Total size of the Sector US$ 18 billion it is one of the largest developed
networks in the world.
It is the largest rail network in Asia and the world’s second largest under
single management.
It covers 63,140 route km, carrying 20 million passengers a day on about
18,000 trains.
It employs 1.4 million people.
It is one of the few mixed traffic systems in the world, carrying both
passengers and freight that generates a cash surplus.
The Central Statistical Organisation suggests growth rates at 12.5 per cent
and 6.7 per cent for net tonne km and passenger km, respectively.
Singhania and Co. LLP
Opportunities in Railways
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The private sector can invest in projects ranging from multi-level parking
facilities, multi–modal logistic parks, auto hubs, high-speed train corridors and
rolling stock units.
Private investment slated to increase from the current US$ 217.88 million to
US$ 1.08 billion in the next three years.
The Indian Railways has worked out new projects under the public-privatepartnership scheme. Infrastructure major Punj Lloyd Group has secured three
contracts worth US$ 61.4 million from the Bangalore Metro Rail Corporation
for the construction of eight stations. The group is working on several projects
for Delhi Metro.
Reliance Infrastructure, an ADAG company, has finalised contracts for the
metro rail link in Delhi and Mumbai.
Indian Railways is considering the addition of exclusive luxury coaches to all
its major trains, in order to attract foreign tourists.
Singhania and Co. LLP
Opportunities in Roads
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As per National Highway Authority of India , the country has the second
largest road network.
The potential Investment in the sector is expected to be to tune of US $ 107
Billion from 2010 to 2013-2014.
The investment of US $ 50 Billion on concession /contracts to be awarded by
2012.
Road sector has been declared as an Industry by Government of India.
The National Highways Authority of India and The United Kingdom Trade and
Investment department signed an agreement on Cooperation for trade and
investment in the roads and Highways sectors in India.
Private Participation in Roads may be through BOT route in which
concessionaire has right recover costs and make profit by collection of tolls.
Singhania and Co LLP
Opportunities in Sea Port and
Airport
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Ports: Planned capacity addition of 485 million MT in Major ports, 345 million
MT in Minor Ports, Construction of Jetties and berths, Port Connectivity,
Channels deepening and Port equipment's.
Airports: Planned modernization and redevelopment of 4 metro and 35 nonmetro airports, constructing 7 Greenfield airports, Constructing 3 airports in
North East, Upgrading CNS/ATM facilities, Establishing training facilities and
MRO.
The civil Aviation sector includes Airports, scheduled and Non-Scheduled
domestic passenger airlines, Helicopter services/Seaplane services, Ground
Handling Services, Maintenance and repair organisations, flying training
institutes and technical training institutions.
FDI from 49% to 100% under automatic route is available for specific
activities as per revised guidelines issued by Department of Industrial Policy
and Promotion.
Singhania and Co. LLP
COMMERCIAL AND LEGAL
ISSUES
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There are varied options for foreign Companies to enter in Indian Market.
They may operate through Liaison Office, Project Offices or Branch offices.
They can also operate as an Indian Company through a joint venture or
wholly owed subsidiary.
They are also allowed to invest in export processing Zones/100% export
oriented units and special economic Zones.
Company or Intending investor may associate in BOT projects or by
participation in Bond and Direct Borrowings.
Singhania and Co. LLP
Problems in Financing Infrastructure
Projects in India
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Inadequate and Under-developed infrastructure mainly power and roads.
The Problem of Tariff determination – The tariff is typically fixed in advance
and is adjustable over time only in accordance with pre determined
contractual terms. Disputes over tariffs can delay project implementation.
There are 3 ways of fixing tariffs
Cost Based tariff, Competitive bidding and Regulated Tariff
Any of these methods for fixing tariffs can ensure adequate returns to
investors. More difficult is ensuring that the resulting tariff pass the test of
Public acceptance.
Singhania and Co. LLP
Problems continued……
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Operating Risk – The technical performance of the project during its
operational phase can fall below the levels projected by investors for a
number a reasons such as fuel supply or material supply risk
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Market risk – Market risk relate to the possibility that market conditions
assumed in determining the viability of the project are not realised. Unrealistic
demand projection is an obvious example of market risk
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Interest Rate Risk – Interest rates can vary during the life of the project. They
are particularly important in Infrastructure projects because of high capital
intensity and long payback periods
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Foreign Exchange Risks –Exchange rate risk related to domestic revenues
required to make overseas payments in USD. The Indian rupee is weak
currency that carries risk of devaluation
Singhania and Co. LLP
Problems continued……
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Regulatory Risk – Regulatory risk arises because infrastructure projects have to
interface with various regulatory authorities throughout the life cycle, making
them specially vulnerable to regulatory action.
Infrastructure projects have high visibility, and there always a strong element of
public interest. This makes them vulnerable to political action that can interrupt
or upset settled commercial terms.
Construction Risk – It refers to unexpected developments during the
construction period that lead to time and cost overruns or short falls in
performance parameters of the completed project.
Singhania and Co. LLP
Notable Cases
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We have advised Hyundai Motors based in South Korea about Entry in
India and Indian Corporate Matters.
We assisted IBM based in US on joint ventures and Indian Corporate
matters.
We also provided legal assistance to Nissan Motors based in Japan on joint
ventures and Indian Corporate matters.
Our firm provided assistance to a German Company ‘ RuhrGas’ about
Acquisition of Indian Subsidiary of another transnational company.
We also provided legal assistance to KNP (Royal Dutch Telecom) based in
The Netherlands on Indian Corporate matters.
We also advised British Telecom on Indian Corporate Matters.
Singhania and Co. LLP
Singhania & Co. LLP
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TEL: +44(0) 20 77991688
FAX: +44(0) 20 77991687
E-mail: info@singhaniauk.com
Web: www.singhania.com
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